Merkel Warns Against Political Influence on ECB Stress Tests

May 14 (Bloomberg) -- Chancellor Angela Merkel warned
against political meddling in stress tests for European banks
and said the world’s biggest economies haven’t finished
regulating the shadow banking system.

Any effort to water down the stress tests as the European
Central Bank prepares become the euro area’s prime bank
supervisor in November will be harmful, Merkel told a banking
conference in Berlin today.

“I can only urgently call for there to be little or no
political influence here, otherwise the reputation of the
European Central Bank as an oversight authority will be damaged
before it starts,” Merkel said at the meeting of the BVR
association of cooperative banks.

Armed with models for financial and economic crises, the
ECB plans to start testing almost 130 European banks in May and
release results in October. The stress tests are part of ECB
President Mario Draghi’s effort to build up confidence in the
health of the region’s lenders.

Merkel invoked previous tests by the European Banking
Authority, which gave a clean bill of health in 2011 to French-Belgian lender Dexia SA three months before it failed in a bank
run. A year earlier, Ireland’s two biggest banks needed a
bailout within months of passing exams by the now-defunct
Committee of European Banking Supervisors.

Regulation Fatigue

Citing global efforts to rein in risky capital by the Group
of 20 richest nations, Merkel said the group had completed as
much as 80 percent of what was needed. The rest will become more
difficult as the G-20 seeks to regulate the so-called shadow
banking system, she said.

“It’s becoming ever more difficult to regulate money with
the growing distance to the crisis,” Merkel said.

Merkel also delivered a warning to the European Commission
as it weighs rules on splitting traditional banking from higher-risk businesses. The Commission’s current proposal “goes in the
right direction,” she said.

“We’re following the processes very closely, but we don’t
in any way want the proven universal banking system to damage
the financing of the economy,” the chancellor said.

Germany last year passed rules to force German banks to
separate some investment-banking operations from units that work
with corporate and retail clients, while preserving Germany’s
so-called universal banking model of investment and retail-banking arms.